Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Fortunato v. Akebia Therapeutics, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

February 21, 2017

Anthony Fortunato, Individually and on Behalf of All Others Similarly Situated
Akebia Therapeutics, Inc. et al. [1] No. 135997

          Filed February 22, 2017


          Kenneth W. Salinger, Justice of the Superior Court.

         Anthony Fortunato asserts claims on behalf of himself and a putative class of investors in Akebia Therapeutics, Inc. The amended complaint alleges that Akebia's final registration statement and prospectus for its initial public offering were misleading because they did not disclose interim results from an ongoing clinical drug trial. Fortunato claims that as a result Akebia, senior executives and directors who signed the offering materials, and the investment banks that acted as underwriters for the IPO all violated the federal Securities Act of 1933.

         Defendants move to dismiss this action on the grounds that: (1) the federal courts have exclusive jurisdiction over Securities Act class actions; (2) Fortunato's claims sound in fraud and he has failed to state the factual basis for his claims with sufficient particularity; and (3) if particularity is not required, Fortunato has failed to allege facts that plausibly suggest he and the putative class are entitled to relief.

         The Court concludes that the first two arguments are without merit. State courts have concurrent jurisdiction to hear Securities Act class actions; the Securities Litigation Uniform Standards Act of 1998 did not take that power away. And Fortunato need not meet the heightened pleading standard that applies to fraud claims because he alleges only negligent misrepresentations and expressly disclaims any claim of intentional or reckless fraud.

         But the Court will ALLOW the motion to dismiss because the facts alleged by Fortunato do not plausibly suggest that he is entitled to any relief under the Securities Act. Fortunato claims that the offering materials issued by Akebia for its March 2014 IPO were misleading because they failed to disclose preliminary information from Akebia's ongoing Phase 2b clinical trial of its first potential pharmaceutical product suggesting that patients receiving the test drug were more likely to experience serious adverse events than patients who received a placebo. But the complaint and the materials it cites make clear that this Phase 2b study was a double-blind, placebo-controlled, randomized trial. They also indicate that this trial was not completed, and thus the study results were not unblinded to reveal which patients received the trial drug and which received a placebo, until six months or more after the IPO. Fortunato alleges no facts plausibly suggesting that Defendants knew or could have known any material information about the double-blind Phase 2b trial before Akebia's IPO or, indeed, at any time before Akebia publicly released the final trial results in October 2014.

         1. Subject Matter Jurisdiction

         Fortunato asserts claims on behalf of himself and a proposed class of more than fifty investors under sections 11, 12(a)(2), and 15 of the federal Securities Act of 1933; these provisions are codified as 15 U.S.C. § § 77k, 77l, and 77o, respectively. " The Securities Act 'was designed to provide investors with full disclosure of material information concerning public offerings.'" In re Ariad Pharms., Inc. Sec. Litig., 842 F.3d 744, 755 (1st Cir. 2016), quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). " Section 11 advances this goal by creating virtually strict liability for any 'untrue statement' or misleading omission of material fact in a registration statement." Id., quoting 15 U.S.C. § 77k(a). " [S]ection 12(a)(2) imposes similar liability on sellers who make such statements in a prospectus or oral communication." Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 766 (1st Cir. 2011), citing 15 U.S.C. § 77 l (a)(2). " Section 15 creates liability for any individual or entity that 'controls any person liable' under sections 11 or 12." Id., quoting 15 U.S.C. § 77o. Thus, " a liability finding under either § § 11 or 12 is a prerequisite for success under § 15." Silverstrand Investments v. AMAG Pharm., Inc., 707 F.3d 95, 107 (1st Cir. 2013).

         Defendants argue that the Securities Act gives federal courts exclusive jurisdiction and deprives the Massachusetts courts of subject matter jurisdiction over Fortunato's class claims. (Defendants have actually moved to dismiss all of Fortunato's claims for lack of subject matter jurisdiction. But their jurisdictional argument only pertains to the claims he seeks to assert on behalf of the putative claims, not to his personal claims under the federal Securities Act.)

         Fortunato makes two responses. First, he points out that Akebia made the same jurisdictional argument after attempting to remove this action to federal district court; notes that Judge Saris rejected the jurisdictional argument and remanded the case to the Superior Court; and argues that Judge Saris's ruling is binding and may not be revisited. Second, Fortunato asserts in the alternative that Judge Saris's ruling was correct and that state and federal courts have concurrent jurisdiction over class actions brought under the federal Securities Act.

          The Court concludes that it must make its own determination as to its subject matter jurisdiction, and not merely defer to Judge Saris's prior ruling. It would also be inappropriate to skip over the jurisdictional question and decide whether Fortunato has stated a viable claim without first determining whether the Court has the power to resolve that question. Turning to that question, the Court concludes that state courts retain concurrent jurisdiction to hear and decide Securities Act class actions.

         1.1. Law of the Case

         Defendants tried to remove this action to federal court. They ran afoul of a Securities Act provision that bars removal of any case under the federal statute that is " brought in any State court of competent jurisdiction." See 15 U.S.C. § 77v(a). Fortunato sought a remand under this provision. Defendants opposed the remand request on the ground that the Superior Court is not a " court of competent jurisdiction" because Congress has given federal courts exclusive jurisdiction over class actions under the federal Securities Act. Judge Saris disagreed. She held that the state and federal courts have concurrent jurisdiction over Fortunato's class claims. She therefore ordered that the case be remanded to the Suffolk County Superior Court. See Fortunato v. Akebia Therapeutics, Inc., 183 F.Supp.3d 326 (D.Mass. 2016). By law, Defendants cannot appeal or otherwise seek review of this remand order. See Kircher v. Putnam Funds Trust, 547 U.S. 633, 640-44, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006).

         Fortunato insists that, under the " law of the case" doctrine, the prior jurisdictional ruling by Judge Saris " controls here" and therefore " precludes" and " prevents" any further consideration of the issue. That is not correct.

         The decision to remand this case has no preclusive effect, with respect to Judge Saris's jurisdictional ruling or otherwise, because Defendants had no right to seek any appellate review. Kircher, supra, at 646-47; see also Alicea v. Commonwealth, 466 Mass. 228, 234, 993 N.E.2d 725 (2013) (whether federal court judgment or order has preclusive effect in state court proceeding " is governed by Federal common law, " not by state law). " While the state court cannot review the decision to remand in an appellate way, it is perfectly free to reject the remanding courts reasoning[.]" Kircher, at 647. Furthermore, a federal judge has no more power to " confer jurisdiction" on Massachusetts courts than does the secretary of a state agency, and her " opinion with respect to the existence of jurisdiction" is similarly " neither controlling nor entitled to special weight." Cf. Cummings v. Secretary of Exec. Office of Envtl. Affairs, 402 Mass. 611, 613-14, 524 N.E.2d 836 (1988) (state agency cannot confer jurisdiction on courts by regulation).

          The law of the case doctrine does not prevent a second judge from revisiting " an earlier ruling by another judge." Martin v. Roy, 54 Mass.App.Ct. 642, 644, 767 N.E.2d 603 (2002); accord, Gleason v. Hardware Mut. Cas. Co., 331 Mass. 703, 710, 122 N.E.2d 381 (1954). Since final judgment has not entered, the Court has " broad discretion" to revisit any prior ruling in this case. Genesis Technical & Fin., Inc. v. Cast Navigation, LLC, 74 Mass.App.Ct. 203, 206, 905 N.E.2d 569 (2009); accord, Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387, 401, 788 N.E.2d 522 (2003) (" it is within the inherent authority of a trial judge to 'reconsider decisions made on the road to final judgment'") (quoting Franchi v. Stella, 42 Mass.App.Ct. 251, 258, 676 N.E.2d 56 (1997)).

         There are several reasons why it makes sense for the Court to make its own determination as to whether it has subject matter jurisdiction, rather than merely adopt Judge Saris's thoughtful decision.

         As Judge Saris recognized, there is a sharp disagreement among federal district judges as to whether federal courts have exclusive jurisdiction over federal Securities Act class actions or, alternatively, whether state courts share concurrent jurisdiction over such claims. Fortunato, 183 F.Supp.3d at 328; accord, e.g., Rosenberg v. Cliff's Natural Resources, Inc. No. 1:14CV1531, 2015 WL 1534033, *2-*3 (N.D. Ohio 2015); Toth v. Envivo, Inc. No. C 12-5636 CW, 2013 WL 5596965, *1 n.1 (N.D.Cal. 2013). It appears that no federal appellate court has addressed the issue.[2] The Supreme Court is considering whether to step in and resolve this split among federal district judges.[3] It has invited the Acting Solicitor General to express the views of the United States as to whether certiorari should be granted.[4] But at present the issue remains hotly contested and unsettled.

         Furthermore, since " the question of subject matter jurisdiction may be raised by the parties at any time, " is therefore " certain to reappear" on appeal if Fortunato were to prevail on the merits, and has been fully briefed and argued by the parties, it makes little sense to allow the case to proceed without considering the merits of Defendants' assertion that Massachusetts courts lack subject matter jurisdiction over Fortunato's claims. See Maxwell v. AIG Domestic Claims, Inc., 460 Mass. 91, 99, 950 N.E.2d 40 (2011) (deciding interlocutory challenge to subject matter jurisdiction, even though Defendant had no right to seek interlocutory review on that ground).

         1.2. Subject Matter Jurisdiction as Prerequisite

         The Court must decide Defendants' jurisdictional challenge under Mass.R.Civ.P. 12(b)(1) before it can address their arguments for dismissal under Rule 12(b)(6) " [b]ecause the question of subject matter jurisdiction goes to the power of the court to hear and decide the matter." Ginther v. Commissioner of Ins., 427 Mass. 319, 320 n.4 & 322 n.6, 693 N.E.2d 153 (1998). " Courts . . . have both the power and the obligation to resolve questions of subject matter jurisdiction whenever they become apparent[.]" HSBC Bank U.S.A., N.A. v. Matt, 464 Mass. 193, 199, 981 N.E.2d 710 (2013), quoting Nature Church v. Assessors of Belchertown, 384 Mass. 811, 812, 429 N.E.2d 329 (1981). " The question at the heart of subject matter jurisdiction is, 'Has the Legislature [or the Constitution] empowered the [court] to hear cases of a certain genre?'" Ten Persons of the Commonwealth v. Fellsway Development, LLC, 460 Mass. 366, 375, 951 N.E.2d 648 (2011), quoting Doe, Sex Offender Registry Bd. No. 3974 v. Sex Offender Registry Bd., 457 Mass. 53, 56-57, 927 N.E.2d 455 (2010), and Wachovia Bank, Natl. Ass'n v. Schmidt, 546 U.S. 303, 316, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006). " Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998), quoting Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264 (1868).

          Massachusetts courts sometimes skip over difficult jurisdictional issues, and instead resolve a case on the merits, where doing so will make " no difference in the result." See Boston Gas Co. v. Department of Pub. Utils., 368 Mass. 780, 805, 336 N.E.2d 713 (1975); accord, Mostyn v. Department of Envtl. Prot., 83 Mass.App.Ct. 788, 792, 989 N.E.2d 926 & n.12 (2013). The plaintiffs in Boston Gas and Mostyn were seeking to challenge decisions by administrative agencies. The defendant agencies argued that the plaintiffs did not have standing. Whether a plaintiff has standing raises an " issue of subject matter jurisdiction." Indeck Maine Energy, LLC v. Commissioner of Energy Resources, 454 Mass. 511, 516, 911 N.E.2d 149 (2009). In a case involving judicial review of an administrative decision, however, it often does not matter whether the claim fails because no plaintiff has standing or because the plaintiffs have not asserted a meritorious claim. Either way, the result is typically the same: a judgment will enter that leaves the agency decision intact, and strict statutory time limits will bar anyone else from seeking judicial review thereafter. Compare Indeck, supra (affirming judgment that dismissed action for lack of standing) with Mostyn, supra (affirming judgment that affirmed agency's decision).[5]

         In this case, however, it would make a big difference whether the Court dismisses the action for lack of subject matter jurisdiction or does so because Fortunato has failed to state any claim upon which relief can be granted. A dismissal for lack of subject matter jurisdiction would be without prejudice, leaving Fortunato free to refile this class action in federal court. See Abate v. Fremont Inv. & Loan, 470 Mass. 821, 836, 26 N.E.3d 695 (2015) (" Dismissals for lack of subject matter jurisdiction are ordinarily without prejudice because dismissal for lack of jurisdiction is typically not an adjudication on the merits"). But a dismissal for failure to state a claim would be with prejudice, and bar any further claim by Fortunato personally. See Mestek, Inc. v. United Pacific Ins. Co., 40 Mass.App.Ct. 729, 731, 667 N.E.2d 292, rev. denied, 423 Mass. 1108, 671 N.E.2d 952 (1996) (" Under Massachusetts law, as elsewhere, a dismissal for failure to state a claim, under Mass.R.Civ.P. 12(b)(6), operates as a dismissal on the merits, see Mass.R.Civ.P. 41(b)(3), with res judicata effect") (quoting Isaac v. Schwartz, 706 F.2d 15, 17 (1st Cir. 1983)). Since no class has been certified, such a dismissal would not have preclusive effect with respect to the putative class. See Massachusetts General Hosp. v. Rate Setting Comm'n, 371 Mass. 705, 713, 359 N.E.2d 41 (1977).

         It would be inappropriate to decide whether this action must be dismissed with prejudice under Rule 12(b)(6) for failure to state a claim without first deciding whether the Court has subject matter jurisdiction to adjudicate the merits. If the Court lacked subject matter jurisdiction, any judgment dismissing Fortunato's claims with prejudice would be void and have no effect. See Everett v. 357 Corp., 453 Mass. 585, 612, 904 N.E.2d 733 (2009) (vacating judgment entered after jury trial and ordering dismissal because Superior Court lacked subject matter jurisdiction).

         1.3. State Court Jurisdiction

         So let's turn to the jurisdictional question. According to Defendants, Congress established concurrent state and federal court jurisdiction over suits brought to enforce the Securities Act of 1933, but then eliminated state court jurisdiction over larger Securities Act class actions when it amended that statute in 1998. Defendants say that Congress originally established concurrent jurisdiction by providing that " [t]he district courts of the United States . . . shall have jurisdiction . . . concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter." See 48 Stat. 86, § 22(a) (now codified at 15 U.S.C. § 77v(a)); see also Wilko v. Swan, 346 U.S. 427, 433 n.16, 74 S.Ct. 182, 98 L.Ed. 168 (1953). Congress amended this provision in 1998. It now says that federal district courts " shall have jurisdiction . . . concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits . . . brought to enforce any liability or duty created by this subchapter" (emphasis added). 15 U.S.C. § 77v(a), as amended by the Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, § 101(a)(3) 112 Stat. 3227 (1998) (" SLUSA"). Defendants say this amendment " extinguished" state court jurisdiction over Securities Act class actions seeking damages on behalf of more than fifty people.

         The Court disagrees. Congress did not have to and did not in fact establish concurrent state and federal jurisdiction over Securities Act claims, because state courts have the inherent power under our federal system to decide such claims. And nothing in the 1998 statutory amendment deprives state courts, either expressly or by necessary implication, of concurrent jurisdiction to hear and decide class actions of any size brought under the Securities Act.

         1.3.1. Concurrent Jurisdiction is Presumed

          State courts do not need permission from Congress to hear and decide questions of federal law, including causes of action created by federal statute. As the Supreme Judicial Court explained long ago, " [t]he jurisdiction assumed by the state courts, in matters arising under the United States laws, has not been limited to the case where jurisdiction has been expressly conferred upon them by the statute itself." Ward v. Jenkins, 51 Mass. (10 Metcalf) 583, 588, 10 Metc. 583 (1846). So long as no statutory or constitutional provision gives federal courts exclusive jurisdiction, " the fact that the cause of action arose under certain rights acquired by a statute of the United States [is] no sufficient objection to the jurisdiction of a state court." Id. The United States Supreme Court has long agreed. See Claflin v. Houseman, 93 U.S. (3 Otto) 130, 136-37, 23 L.Ed. 833 (1876); Houston v. Moore, 18 U.S. (5 Wheat.) 1, 32, 5 L.Ed. 19 (1820). It has " consistently held that state courts have inherent authority, and are thus presumptively competent, to adjudicate claims arising under the laws of the United States." Tafflin v. Levitt, 493 U.S. 455, 458, 110 S.Ct. 792, 107 L.Ed.2d 887 (1990) (state courts ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.